Global | The economy looks for certainty

Summary

The communication style of the new US administration—threatening and confusing in equal measure—is causing considerable uncertainty, which may have consequences on the future course of the global economy.

Key points

• Key points:
• Higher US tariffs may push up inflation and lead to lower growth, while any kind of reprisal from the affected countries could lead to a trade war with non-linear effects, and with a stagflationary scenario in many countries that would be hard to resolve.
• The key trade policy issue will arrive on April 2, when the United States will announce new “reciprocal” tariff measures, with the idea—or excuse—of matching other countries’ trade restrictions.
• BBVA Research’s latest forecasts point to an across-the-board 10% increase in tariffs by the United States but no major countermeasures from its trading partners, with the exception of China (where the tariffs could eventually reach 60%).
• Under these assumptions, the United States could grow by around 2.5% this year, China by 4.5%, thanks to its ability to kick-start the economy, and the Eurozone by close to 1%.
• With inflationary pressures higher in the United States than in Europe, the Fed could lower interest rates to 4% in the second half of 2025, later than the ECB (which would have cut them to 2% by June). This does not yet take into account Europe’s fiscal reaction, which could push up economic variables.

Geographies

Topics

Tags